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When trying to get an angel
round done, the key question is how much you need to have
raised to hold a first close. Most rounds I’ve been
involved with have lower and upper bounds, e.g., $400k first
close, $750k maximum raise. The goal here is to get to $400k and
a first close, and using the best tactics to get this done.
Because once the first close is achieved, there is a strong
gravitational pull toward the final close as the impact of social
proof is felt and “fast followers” jump on board.

For starters, there are two kinds of commitments - hard
and soft. Hard means that once wire instructions are
provided and final documents are sent, the money is in the
account. Soft means there is an express interest to invest, but
there isn’t 100% certainty for any number of reasons. The goal is
to turn soft into hard, and to get hard commitments up to that
$400k level. Clearly a frenzy of interest around your company can
turn soft enthusiasm into hard desire and funding, but most
companies lack this. So is the goal to create frenzy? Not
exactly… The goal is to get a deal lead, preferably a value-added
angel with reputation and domain knowledge, to help negotiate the
terms for the round and to provide an initial hard commitment.
Once this is done, ask two things of this angel: (1) can you use
their name and hard commitment when speaking to other investors;
and (2) might they leverage their networks on your behalf as part
of your fund-raising efforts. This can have very powerful effects
both with respect to attracting great investors and speed.
Assuming they are fine partnering with you on this effort, your
job has become markedly easier and your path a straight one. If,
however, you lack such leadership, your job has just gotten much,
much harder.

In the absence of a true angel round lead, you, the entrepreneur,
are putting the whole thing together yourself. Creating initial
terms and trying to get a group of unrelated and independent
angels to rally round these terms. Chipping away at the $400k
first close threshold with a host of $25k commitments. This is a
very tough but well-trodden path. To get the deal over the finish
line, you will need to create a catalyst for getting people to
commit, sign and wire funds. Otherwise, inertia will ensue, the
deal will lose momentum and every day that goes by makes it less
likely that you’ll get to a closing. To mitigate against this
risk, at around $300k, or 75% of the initial goal in hard
commitments, plus a separate set of fence-sitters of, say, $200k,
I’d recommend scheduling a first closing, sending out documents
and wire instructions and creating an urgency to close.
This will focus the fence-sitters attention and you’ll quickly
smoke out where they’re at. By announcing a close and providing
documents, you’ll create a perception of interest, excitement and
seriousness. You can even plant the seed and say “I may decide
that this is all the money I’m taking in before achieving a set
of key milestones and raising more capital at a higher
valuation.” There is nothing more seductive to an angel
investor than the prospect of getting into a deal with restricted
capacity, so by dangling the possibility of round
scarcity those on the fence may well tip into the hard commitment
category.

But let’s be clear, you’re playing poker here, and overplaying
your hand can have grievous consequences. It you play it poorly
and can’t get to $400k after drawing a line in the sand, you will
have to peel a lot of egg off your face and do a lot of fancy
dancing to explain why you didn’t close yet. This may or may not
be a deal killer, but you will certainly lose some face. So you
need to be confident that you can clear the necessary $100k from
your existing group of soft commitments and fence-sitters. If
you’re not, then spend more time pitching new investors to build
the pool until you gain the comfort you need. While it is
possible to tilt the odds in your favor by using the tactics I
outlined above, you need to do so in an atmosphere of prudence,
confidence and good sense.